Just one week after CNBC's two month investigation into shipping carriers' rejection of U.S. agricultural exports, California is calling on the Federal Maritime Commission for immediate action. A letter to the FMC was signed by several state officials asking for immediate steps in reviewing the carriers' export policies.
Shipping carriers rejected U.S. agricultural export containers worth hundreds of millions of dollars during October and November, instead sending empty containers to China to be filled with more profitable Chinese exports, the CNBC investigation found.
In the letter obtained by CNBC, state officials said, "We are writing to seek your assistance to address the current delays and ongoing shipping challenges in California ports which are significantly impacting the operations of businesses throughout the state. In particular, the operations of our agricultural sector which relies heavily on export markets are being heavily affected."
California, the letter said, is the largest agricultural exporter and producer in the nation with more than $21 billion in agricultural exports annually, requiring and supporting an estimated 157,800 full-time jobs. These exports directly benefit the national economy by generating $25 billion in additional economic activity.
The letter urging action comes after FMC announced an investigation in November on trade out of key ports in California, New York and New Jersey to see whether the carriers' refusal to load U.S. export cargo was a violation of the Shipping Act.
The act makes it unlawful for carriers to "unreasonably refuse to deal or negotiate," "boycott or take any other concerted action resulting in an unreasonable refusal to deal," or "engage in conduct that unreasonably restricts the use of intermodal services."
The FMC declined to comment.
The World Shipping Council, whose members control approximately 90 percent of the global container fleet, and the Pacific Merchant Shipping Association responded to California officials, pushing for better communication between them versus involving the FMC.
In a two-page letter given to CNBC, the two groups blamed the record surge of imports from China and disruptions due to the Covid-19 pandemic as the catalysts impacting the port's efficiency and associated charges importers and exporters are paying.
The WSC and PMSA listed the export sales volumes of the various agriculture exported out of California and said it demonstrated a "substantial increase" year-on-year. The group then characterized it as a "mistaken impression that California's agricultural exports are being excluded from access to the international supply chain."
CNBC previously reported that while agricultural export volume for 2020 was larger than 2019 because of the U.S. Phase One trade agreement with China, the purchases were short of targets. According to the Peterson Institute for International Economics, China imported $100 billion of the U.S. goods agreed to in the deal — roughly 58% of the targeted $173.1 billion. Exports are not official until transported and processed in the country of destination. The increase in agricultural exports, though, pales in comparison to the increased ration of empty export containers.
CNBC launched its own review on the import and export data and concluded carriers rejected an estimated 177,938 containers known as TEUs (20-foot equivalent units) in October and November, according to analysis of data compiled from the Census Bureau and the ports of Los Angeles, Long Beach, California, and New York and New Jersey. The total value lost export trade from those ports is $632 million.
The data showing the increase in empty containers transported back to China, corresponds with the timing of the carriers who notified agricultural exporters in mid-October, that they would prioritize empty export containers over agricultural exports.
Carriers also said they would increase prices on U.S. agricultural exports if the commodities were transported. The increase in charges on agricultural exports continue. Last week, ZIM Integrated Shipping Services notified agriculture exporters they would be implementing surcharges for all cargo originating from the US destined to China and other Asian countries ranging from $150- $500 per containers starting on February 17.
CNBC has reached out to ZIM for a comment.
According to CNBC's investigation, the total export container deficit for the ports of Long Beach and Los Angeles was 136,392 TEUs. An estimated 41,546 TEUs were denied out of the Port of New York and New Jersey.
To calculate the value in the potential lost trade as a result of the rejection of agricultural exports, CNBC used the Port of Los Angeles containerized agricultural export price for soybeans/oilseeds/grains, which can be found on the U.S. Census, USA Trade Online site.
The value of this export is $3,552 a TEU. The value of the lost trade is expected to be higher since the value of ag commodities greatly range. Soybeans are on the lower end of the trade value spectrum.
That tally was calculated by taking the difference between the actual empty exports in 2020 vs. the 2019 share of export empties.
But CNBC analysis shows, the pattern of the growing U.S. export container deficit expands beyond October and November.
Based on the trade data, the increase in empty container exports started as early as June for Los Angeles, July for Long Beach, and August for New York and New Jersey. From July through November, a total of 297,997 TEUs were denied out of the ports of Los Angeles, Long Beach, and New York and New Jersey a container deficit value of $1.1 billion.
"The core issue is that a rapidly-recovering China has revved up its export economy and is paying huge premiums for containers, making it more profitable to send them back empty than refill them," said Peter Friedmann, executive director of the Agriculture Transportation Coalition. "At the port of Los Angeles, three in every four boxes going back to Asia are empty compared with the normal 50% rate. Food is piling up in all the wrong places."
Read the full letter:
Correction: An earlier version misstated the location of the ports exporting the agricultural products. The data from the World Shipping Council and the Pacific Merchant Shipping Association was for exports from all of California.